Keep banking sector open to new players, Deloitte report urges

An internal Deloitte report on the financial services sector commissioned by supermarket chain Coles has warned against rising market concentration since the GFC, arguing the surest way to promote competition and the entry of new non-financial conglomerates - such as Coles owner Wesfarmers - is to keep barriers to entry as low as possible.

The report by Deloitte Access Economics, which calls for deregulation across the banking and financial services sectors to improve competition, services and prices for consumers, dovetails nicely with Coles' growing ambition to break into the banking space through a suite of offerings including insurance, credit cards and, potentially, banking.

''In the wake of the GFC the question needs to be asked whether Australia's prudential regulatory environment has become onerous and is acting as an impediment to competition, innovation and technical efficiency in financial markets,'' the Deloitte report says.

''It is important to ensure that non-financial conglomerates can continue to provide financial services in Australia, including by entering the retail banking market.

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''The surest way to promote competition in a market is to keep barriers to the entry of new participants as low as possible, consistent with the need to ensure market integrity and stability.''

It comes as Coles research underlines the lucrative and highly profitable earnings streams that could flow into its supermarket coffers from a range of banking products.

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Fairfax Media reported on Thursday that Coles had pulled together a senior team at its Melbourne headquarters to develop its burgeoning financial services arm, with an eye to offering banking services to better bind customers to its stores and boost grocery sales.

Documents prepared by Coles shows the leading supermarkets in Britain that have launched into mainstream banking have struck enviable earnings multiples. Tesco, Britain's largest retailer, generates less than 1.5 per cent of group turnover from its banking arm, Tesco Bank, but the bank's profit (£194 million in 2013-14) as a percentage of total group profit was 5.5 per cent.

After the first full year of trading, Tesco's mortgage balances have grown to £700 million with the supermarket helping more than 4000 customers to own their homes.

And 18 years since first entering the banking world, Tesco overnight launched a simple savings account with zero fees based on at least £750 a month paid into the account.

Tesco is considered a leading ''challenger'' bank, with deposits of more than £5.2 billion and a credit card that accounts for 12 per cent of all MasterCard and Visa transactions in Britain. Interestingly, Coles has poached a number of senior executives from Tesco.

Sainsbury's, which is Britain's third-biggest retailer, also gets plenty of bang for its buck from its Sainsbury's Bank arm, generating less than 1 per cent of group turnover but 5.5 per cent of total profit. Financial services arms opened by Canadian and French retailers have delivered similar strong results.

Coles and Woolworths are eyeing off a bigger push into the financial services sector, with the two supermarket giants already offering a limited range of products around credit cards, life, car and pet insurance and flybuys to their grocery shoppers.